FAVOURITES – 8 April 2010 – As the deadline for the introduction of mandatory disclosure of energy efficiency in commercial buildings draws near, many owners of lower grade buildings are completely unprepared. And with these buildings accounting for around 80 per cent of the commercial market, property agencies are preparing to work overtime in the coming months to get them up to speed.

Simon Cox, head of sustainability for Colliers, knows he’s going to be flat out over the next couple of months. While his team has been sending out regular newsletters to clients to update them on mandatory disclosure since it was first mooted, it’s only in the past week, with the release of the scheme’s details (see our story on this), that many of them have really started taking notice.

Under the scheme, owners of commercial buildings of 2000 square metres and higher will have to provide a NABERS base building rating, tenant lighting details and energy efficiency guidance when the building is sold or re-leased.

And the penalties for non compliance are high – up to $110,000, with penalties accruing daily, the equivalent of $55 a metre a day, says Cox. This has made people sit up and take notice.

“We’ve been telling our clients for some time if they don’t get on board, they will face problems making the necessary changes in time. The first step is to get a NABERS rating done. All of the institutional and large owners did this a long time ago. It is the next tier down, the smaller private owners, that haven’t seen the value. Now they will be forced into it,” says Cox.

He estimates that in Sydney only 16 out of 82 buildings in the North Sydney CBD have been assessed by NABERS and in Parramatta less than 10 out of 72.

Cox has been stressing to clients that unless they start preparing now, there could be a delay in getting assessors when they really need one. Colliers has also been making sure all of its assessors are prepared – seven are already NABERS accredited and another four are being trained. In total the team consists of 13 Green Star accredited assessors, 12 NABERS assessors and seven engineers.

The main problem, says Cox, is getting the right information out to the market.

“There’s still a bit of confusion about what buildings are included – a bit of tidying up is needed in the way the scheme is currently written. The penalties are also possibly tougher than they need to be, but then again there needs to be a stick for people to sit up and pay attention.

“It is a bit of a sledge hammer approach but ultimately it is a good thing. We tell our clients that by taking action they get immediate results. It is not expensive to have a building assessed and by running their buildings more efficiently they lower their energy bills and improve the value and the leasing potential,” says Cox.

Anita Mitchell, Australasian head of sustainability with Jones Lang Lasalle, estimates that about 30 per cent of Australia’s total building stock has never been NABERS rated. These are the second tier buildings that have not seen the value in doing so.

“There will always be a market for lower performing buildings. If you’ve got a major CBD building it is much more important to keep pace with the market than it is for those on the fringe,” she says.

The danger for these properties, says Mitchell, is that they will end up being discounted in value if they don’t make their buildings energy efficient. There could also be significant delays to a sale or new lease deal if the building is not ready for mandatory disclosure requirements.

Anita Mitchell

The main challenges for building owners in making the transition to mandatory disclosure are grappling with data capture, making sure their meters are in the right place and getting an assessor in the necessary timeframe, says Mitchell.

NABERS specifies that meters must segregate a building’s energy load – for example, tenant metering must be separate from the base building and a commercial building with a retail component must separate the two areas.

“People are used to there being very few barriers to transactions. If they don’t have a BEEC [Building Energy Efficiency Certificate] in their back pocket it is not going to happen. They can’t opt out so if they haven’t got the work done it’s a problem. Many are having a hard time getting their minds around the potential for delay,” says Mitchell.

Jones Lang Lasalle has almost doubled its sustainability team over the past few months from eight to 15. The team includes 10 NABERS accredited assessors and a dedicated mandatory disclosure co-ordinator, who will be appointed in the next couple of weeks.

“Mandatory disclosure will shift the market more than any other government initiative,” says Mitchell. “It will allow asset comparison just as consumers can compare the efficiencies of appliances or cars. People might still buy a less energy efficient building but they can make an informed choice. The changes will provide transparency,” says Mitchell.

“The down side is that for those building owners who can’t keep up their buildings are likely to be discounted, just as a couple of decades ago buildings lost value if they didn’t keep up with IT developments.”

There are some implementation issues with the scheme Mitchell would like to see clarified, particularly in relation to transitional arrangements and exemptions.

“There are lots of specific nuances on how we can implement the scheme on behalf of our clients. We look forward to clarification of these,” said Mitchell.

Jon-Paul Mather

At Frank Knight the sustainability committee is made up of people from across the business. Head of the committee, Jon-Paul Mather, who is also NSW director of facilities management, says this ensures feedback to the committee from people who operate the business and better integration of sustainability issues across the divisions. Nationally, the agency has eight NABERS accredited asessors.

A major challenge from an agency point of view, says Mather, is that the range of clients is enormous – from top end building owners such as INVESTA, Macquarie, Stockland and Colonial to small private owners.

And this lower end, with much less of a grasp of what is required for mandatory disclosure, makes up around 80 per cent of the total market.

“In terms of mandatory disclosure we are focusing on being able to provide as automated a service as possible. We ask clients if they have information on energy bills, survey plans for all areas and after-hours data.

“We aim to get their rating done 18 months to two years prior to turnaround. NABERS requires a long turnaround as they must have data for a 12 month period to demonstrate performance. We focus on this with clients. In a competitive market if a building comes up poorly and you want to turn it around you’ve got a problem,” says Mather.

Problems could arise for buildings where there have been ownership issues, such as mortgagee in possession sales. Often such buildings will not be up to scratch and this could impact on a quick sale.

“We stress to our clients that for a very small cost they can know where they stand. To get a rating done only costs a few thousand dollars. At least if they take that first step they can plan how to go forward.

“There are still going to be people who have a building that isn’t in the CBD, with a long term tenant, who don’t care about mandatory disclosure. They get the rent every month, the tenant is reasonably happy, so they don’t bother.”

These are the people, says Mather, who will be the least prepared for mandatory disclosure. If they lease or sell further down the track there will be considerable pressure on agents to fix the situation for them.

“We’re pro-active in getting them to see the value in being prepared to avoid future angst for us and for them,” says Mather.

At CB Richard Ellis regional director technical services, Nick Mavropsi said his firm was also currently in the process of expanding its capability to deal with an expected increase in demand from clients for more sustainability services.

He said the company was currently interviewing for two new staff with sustainability qualifications and possibly more, in addition to training existing staff in both NABERS energy accreditation and Green Star accreditation.

“We’re actually employing people I at the moment – two possibly more,” Mr Mavropsi said.

The firm has been very active in assisting clients with green fund loans to help retrofit their buildings, he said.

“We’ve been quite successful with that – in a huge number of project right across the country.”

lblundell@thefifthestate.com.au